Regulation is shaping the sustainability agenda and changing the way companies do business in different jurisdictions but keeping pace with constant regulatory updates has become a mammoth task for businesses and investors. In this recurring series, S&P Global Sustainable1 presents key environmental, social and governance regulatory developments and disclosure standards from around the world.
In this month’s update, we look at a proposal by the European Commission to ban products made with forced labor, plans by the U.S. Federal Reserve to hold climate stress tests for the nation’s six largest banks and moves by the Singapore Exchange to improve disclosure on executive and board pay.
Europe United States and Canada Latin America and the Caribbean Asia Pacific
Europe
EU Parliament adopts position on deforestation proposal
The European Parliament voted on Sept. 13 to adopt its position on a European Commission proposal that would require companies to ensure the products they sell in the EU have not been produced in areas suffering from deforestation. The proposed law would make it obligatory for companies to check that goods sold in the EU have not been produced on deforested or degraded land anywhere in the world, Parliament said in a statement. The Commission’s proposals would affect the sale of cattle, cocoa, coffee, palm-oil, soya and wood, or derived products such as leather, chocolate, and furniture. However, members of Parliament voted to widen the scope of the regulations to include pork, sheep and goats, poultry, maize, and rubber, as well as charcoal and printed paper. They also want the proposed regulation to apply to products produced after Dec. 31, 2019, a year earlier than the Commission’s proposal. Parliament will next start negotiations on the final law with member states.
Big European companies well ahead of US and Asia-Pacific peers on biodiversity
Percentage of companies in three regional S&P indices making nature-related commitments
Data as of November 20221. No net loss, or NNL, means that damages linked to business activity are offset by at least equivalent gaines, avoiding a net loss of biodiversity and ecosystem services. Net positive impact, or NPI, means that corporate actions on biodiversity, such as habitat protection, are greater than the impact from its business activity. A commitment to NPI typically goes further than on to NNL.
Examples of "other" commitments include: No deforestation; no peat; no exploitation; the use of certified raw materials, etc.
Results based on responses from 305 companies.
Source: Corporate Sustainability Assessment 2021, S&P Global Sustainable1.
EU Commission proposes ban on products made with forced labor
The European Commission proposed on Sept. 14 prohibiting the sale of products made with forced labor on the EU market. The proposal covers all EU-manufactured products for domestic consumption and export, as well as imported goods. National authorities would have the power to investigate and then withdraw products made with forced labor from the EU market, the Commission said. Companies would have to dispose of the goods. Member states’ customs authorities would be able to enforce the ban at EU borders, the Commission added. Both the European Parliament and the Council of the EU will now debate the matter, the Commission said. If they reach an agreement, the ban would come into force and apply after 24 months.
EU Parliament adopts new legislation on minimum wage requirements
The European Parliament adopted new rules on Sept. 14 establishing requirements for statuary minimum wages across EU countries. The new law will apply to all EU workers who are employed or who have an employment contract. EU countries that already have a minimum wage set by collective agreement will not have to introduce the rules. In countries where fewer than 80% of employees are covered by collective bargaining, member states will have to increase that figure. The Council of the EU, made up of government ministers from the 27 EU member states, adopted the rules on Oct. 4. They will enter into force on the 20th day after publication in the EU’s official journal. Member states have two years to transpose the directive into national law.
EU Parliament backs plans to increase share of renewables in EU’s energy mix
Members of the European Parliament voted on Sept. 14 to increase the share of renewables in the EU’s energy consumption to 45% by 2030, up from a previous goal of 40% under a revision of the bloc’s Renewable Energy Directive. The new target also forms part of the European Commission’s proposed REPowerEU package designed to reduce the EU’s dependency on Russian fossil fuels. The legislation sets out targets for a range of sectors, including transport, building and heating. Using hydrogen and advanced biofuels in the transport sector, for example, should lead to a 16% reduction in greenhouse gas emissions, the Parliament said in a statement. Additionally, EU member states must develop two cross-border projects designed to expand green electricity. Countries with annual electricity consumption of more than 100 terawatt-hours will need to develop a third project by 2030. Members of Parliament will now negotiate the proposals with the Czech Presidency of the Council of the EU. The Czech Republic currently holds the EU’s six-month revolving presidency. EU ministers adopted their position on the proposals in June.
Council of EU reaches agreement on emergency measures to reduce prices
EU energy ministers reached a political agreement on Sept. 30 on a proposal to address the sharp rise in energy prices in Europe, the Council of the EU said. Ministers agreed to a mandatory reduction of 5% in electricity use during peak hours and a voluntary reduction of 10%. Member states will have to identify 10% of their peak hours between Dec. 1, 2022, and March 31, 2023, and reduce demand during that time, the Council said. It also agreed on a cap on market revenues at €180 euros per megawatt-hour for electricity generators that use renewables or nuclear to produce electricity. Ministers also agreed to levy what they termed a solidarity contribution on profits in the fossil fuel sector. The contribution would be calculated on taxable profits above a 20% increase of the average yearly taxable profits since 2018. The contribution would apply to fiscal year 2022 or fiscal year 2023, depending on the relevant national tax rules. The EU has been seeking to reduce its dependence on Russian energy supplies, and EU countries have been hit by spiraling energy prices.
European energy prices in uncharted territory in 2022
Data as of Sept. 29, 2022.
Chart shows German month-ahead power prices and Dutch Title Transfer Facility day-ahead gas prices.
Source: S&P Global Commodity Insights
EU supervisory authorities propose SFDR disclosures for gas and nuclear
The European Supervisory Authorities, which include the European Securities and Markets Authority, the European Banking Authority and the European Insurance and Occupational Pensions Authority, proposed on Sept. 30 new disclosure requirements under the Sustainable Finance Disclosure Regulation, or SFDR, for natural gas and nuclear energy investments following the inclusion of gas and nuclear in the EU taxonomy, a classification system of sustainable activities. Investment funds will need to say whether their products intend to invest in nuclear or gas and to what extent, the authorities said in a statement.
United States and Canada
US Department of Energy proposes draft guidance on clean hydrogen definition
The U.S. Department of Energy, or DOE, issued draft guidance on Sept. 22 on how to define clean hydrogen to meet the requirements of the Infrastructure Investment and Jobs Act of 2021, which was designed to boost investment in infrastructure projects. The proposed draft standard would consider a clean hydrogen project one that emits no more than 4 kilograms of carbon dioxide per kilogram of hydrogen produced. The DOE noted that the proposal is not a regulatory standard. Stakeholders have until Oct. 20 to comment on the proposal.
US Federal Reserve announces climate stress test pilot for largest banks
The U.S. Federal Reserve Board announced on Sept. 29 that six of the largest U.S. lenders will take part in a pilot climate stress test to be launched in early 2023. The tests will help supervisors and firms measure and manage climate-related financial risks, the Federal Reserve said. The banks taking part in the exercise are Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo. During the tests, the lenders will analyze the impact of different climate scenarios on specific bank portfolios and business strategies. The regulator will publish insights from the tests on identifying risks and how to manage them, it said. The Federal Reserve said it expects the tests to conclude at the end of next year.
Canadian government announces methane emissions reduction plan
The Canadian government announced on Sept. 23 a strategy to reduce its methane emissions by 35% by 2030 compared to 2020 levels, exceeding a 30% reduction target under the Global Methane Pledge. To achieve that goal, Canada plans to put measures in place across the economy to reduce the largest sources of methane emissions, including the oil and gas sector. It also said it will strengthen the clean technology sector and give industry the tools they need to reduce methane emissions in a cost-effective way while also creating well-paying jobs. The government added that it would help develop scientific and technical expertise to improve methane detection, measurement, and reporting.
Latin America
Argentina’s stock market regulator revises rules for social bond issuance
Argentina’s National Securities Commission said on Sept. 5 that it had revised the rules for issuing social bonds to promote access to financing for social projects. The new rules broaden the scope of social bond issuance in Argentina and provide the same financing conditions offered to small and medium-size enterprises as other entities such as civil associations and larger scale cooperatives. The new rules are the result of work between the stock market regulator and the United Nations Development Program, the regulator said. The collaboration brings together participants from the financial sector and identifies the needs and challenges of financing social projects, it said.
APAC issuance grows while supranationals steadily decline
GSSSB issuance by region
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Asia-Pacific
Singapore stock exchange seeks to improve disclosure on board and executive pay
Singapore Exchange Regulation, or SGX RegCo, the regulatory arm of the Singapore stock exchange, said on Sept. 13 that listed company disclosure on board and executive renumeration was “poor” and that it planned to hold a consultation on requirements for reporting on CEO and board pay. Following a review and survey of listed companies by SGX RegCo and KPMG, the regulator said only 35% and 18% of companies disclosed director and CEO remuneration, respectively, in dollar value. It also said that companies typically did not explain the connection between remuneration, performance and value creation. SGX RegCo also said it would consult on the length of time board directors serve. In its review, it said about half of listed companies have at least one independent director that has served for more than nine years and 27% of companies have two or more directors that have sat on a board for longer than nine years. A Code of Corporate Governance introduced in 2018 set a nine-year board membership limit to promote board independence, but it also gave companies the option to retain high-quality independent directors beyond that time period.
Singapore launches consultation on new deadline for achieving net zero emissions
Singapore launched a public consultation from Sept. 5 to Sept. 26 on whether it should aim to achieve net zero emissions by 2050, compared to its previous goal of “by or around mid-century,” Singapore’s National Climate Change Secretariat said in a statement. The secretariat, which supports Singapore’s Prime Minister’s Office in action on climate change, said the consultation also asks whether Singapore should raise its 2030 emission reduction pledge, known as a nationally determined contribution, or NDC, under the 2015 Paris Agreement to obtain the 2050 net zero target. It said Singapore had already taken several steps to become low carbon, including a carbon tax.
Malaysia to develop ESG disclosure guide for SMEs
Capital Markets Malaysia, part of Securities Commission Malaysia, is working on developing an ESG disclosure guide adapted for Malaysian small and medium-size enterprises, the Commission and the Malaysian central bank, Bank Negara Malaysia, said on Sept. 1 following a meeting of their joint committee on climate change. The guide’s objective is to enhance the quality and access to information on how SMEs can make their business resilient to ESG-related risks and what practical action they can adopt. Committee members said it was important that the guide was aligned with global disclosure frameworks, including standards currently being developed by the International Sustainability Standards Board to ensure comparability and minimize compliance costs for both businesses and financial institutions.
Australian parliament passes climate law to be net zero by 2050
Australia’s parliament passed on Sept. 8 a new climate law aiming to reduce Australia’s greenhouse gas emissions by 43% by 2030 from 2005 levels and achieve net zero emissions by 2050. The country’s previous government had aimed to cut emissions by 26% to 28% over the same period. Under the law, Australia’s Minister for Climate Change will report annually on progress toward the targets, while the independent Climate Change Authority will advise the minister, the government said. Government agencies such as the Australian Renewable Energy Agency, the Clean Energy Finance Corporation, Infrastructure Australia and the Northern Australia Infrastructure Facility will incorporate the new targets in their objectives, the government said.
This piece was published by S&P Global Sustainable1 and not by S&P Global Ratings, which is a separately managed division of S&P Global.
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This list is not exhaustive, and information is current as of the publication date. If there are additional significant regulatory developments we should cover going forward, please reach out to Jennifer Laidlaw at jennifer.laidlaw@spglobal.com. We welcome feedback.